United States companies appear to have the highest probability of earnings growth among developed markets. Manufacturing activity and wage growth appear to be showing signs of improvement, while the labor market has tightened and consumer confidence has risen. Additionally, expectations of deregulation combined with expansionary fiscal policy to be pursued through tax cuts (both corporate and personal) will likely provide a tailwind to domestic corporations’ income statements in the coming year. While uncertainty regarding the timing and magnitude of these policy initiatives remains a risk, their overall effect will likely be a short-term bounce in domestic GDP growth.

Conversely, in Europe, quantitative easing implemented by the European Central Bank has failed to substantially stimulate the Eurozone economy against a backdrop of rising nationalism and negative interest rates. In Japan, negative interest rates have failed to increase investment or spending by any substantial margin. Emerging markets as a group are relatively undervalued but will likely be under pressure as Chinese GDP growth continues to slow, commodity prices remain under pressure and the US dollar strengthens.

Due to the prospect of domestic GDP growth and potential for continued political and economic turmoil in the rest of the world, we recommend that investors generally maintain a neutral posture on equities while favoring domestic equities over developed international markets.